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Final Salary Pension
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Sally_Henny_Penny
Posts: 15 Forumite
Can anyone help with this query please. I belong to a final salary pension scheme. I have wanted to go part time now for quite a while, but was under the impression that this was not an option, as it would affect my pension. I have recently been told that the final salary figure would be based on the best salary year over the past five year. Does this sound correct? Any comments would be most welcome
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Every final salary pension scheme has different rules. You would need to refer to the rules of your scheme for a definitive answer.0
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Hi SHP,
This will depend very much on what is in your Scheme Rules which can be complex and often expressed in legal terminology and therefore not very easy to understand. Your Scheme Booklet may offer some help, but these can get out of date very quickly.
Your best bet is to contact your HR or Pensions Manager and ask them.
You are right, though, in that in a final salary scheme your pension is based upon your final pensionable salary in the years immediately before you take your pension. Different schemes use different definitions, so it is the definition of your ‘final pensionable salary’ (or ‘final pensionable earnings’) that is important in this type of scheme.
Some schemes may offer a pro-rata alternative for part-timers, but you need to make sure you have protected the benefits that you have already accrued so far.
Here's a free factsheet which might help:
What earnings are used in my pension (defined benefit schemes)
Hope this helps.
Mike Jones
I work in the field of Pension Education and Pension Guidance in the UK. I am a current member of the Specialist Pensions Forum as well as being a Voluntary Adviser for The Pensions Advisory Service. I work with scheme members, employers, trustees, scheme administrators and advisers on most things to do with employer sponsored pension schemes. The views expressed by me in this thread are my personal opinions. You should seek professional advice from an appropriately experienced and qualified adviser. I am not an IFA.0 -
Find out the names of the Trustees of the scheme; there may be what is called a 'member-nominated trustee' who is usually a staff member or a retired staff member. Contact them and I'm sure they will be able to help you - you probably aren't the only one with this query. Do you still have the original booklet you were given when you joined the scheme?0
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Thank you all for your replies. I will look for the original booklet, but will also contact one of the pensions trustees as I believe they are elected. I work for a company that is now own by a private equity outfit. You have to be soooooooooooo careful with them, bit sneaky, well a lot sneaky really. To be honest, would sooner ask a trustee than HR - how bad is that.
Thanks again0 -
Certainly in most final salary schemes in the Public Sector, going part time will mean that you accrue years in the scheme more slowly.
For example, somebody working full time for 40 years would get 40/80 or 40/60 of their final pay as a pension (depending on the scheme).
Somebody who worked full time for 22 years and half time for 18 years would get 22 plus 18/2 which is 31 years altogether, so their calculation is 31/80 or 31/60 of THE FULL TIME EQUIVALENT FOR THEIR JOB.
This is the important bit, if for example you went half time, it will take you 2 years to build up the the same time in the scheme as someone who is working full time, but when your pension is worked out your the full time pay for your job is used so you do not lose out.
Edited to include: I have assumed that you will stay in the same job but just cut your hours down, not changing your hourly rate that is. If you go to a lower hourly rate this may well have a significant impact on your final salary, however there are sometimes safeguards that will mean you can protect the level of pay you are on now for the years accrued to date, when working out your pension. Again check with your Pension Scheme.
Of course going part time will have an impact on a final salary pension as it means you will earn less, pay less contributions and ultimately have a smaller pension as shown in the example above. However many schemes allow you to buy extra pension through additional pension contributions by the employee.0 -
Sally_Henny_Penny wrote: »To be honest, would sooner ask a trustee than HR - how bad is that.
I would be staggered if any trustee could answer a technical query like this. Trustees are like a Board of Directors - they "manage & oversee" and generally don't know the detail (they don't need to).
As for your original question, I'm not sure what you're asking. Your PT pensionable service will be based on your Full Time Equivalent salary. Your pensionable service - like all other benefits - will be pro-rata, though. It has to be pro-rata under the Part Time Workers (Prevention of Less Favourable Treatment) Regulations 2000. So .... if you're working half the hours of someone in a comparable job, full-time, then your pensionable service is half. If you work 30% of the hours, your pensionable service is 30% etc ....
The pensionable service you have already built up is unaffected - only the pensionable service you build up whilst part time is pro-rata.
Your pensionable salary, whilst you work part-time, is the full-time equivalent i.e. what you would be earning, if you working full-time.Warning ..... I'm a peri-menopausal axe-wielding maniac0 -
Debt_Free_Chick wrote: »As for your original question, I'm not sure what you're asking.
I think the question is quite clear. If someone has been working full-time for a number of years with a Final Salary scheme, does going part-time close to retirement mean that their pension will then be reduced accordingly, i.e., will it only be based upon the part-time final salary, the concern obviously being that years of working full-time will be lost. Is there a simple yes or no answer ?Hi, we’ve had to remove your signature. If you’re not sure why please read the forum rules or email the forum team if you’re still unsure - MSE ForumTeam0 -
Simple answer is that the "final salary" used for the purposes of the pension calculation will be the full time equivalent. If the person concerned is working half the standard hours and being paid £15,000, then the final pensionable salary will be £30,000 (but pensionable service will accrue half as quickly, i.e. half a year for each year worked).If I had a pound for every time I didn't play the lottery...0
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!!!!!!_here wrote: »I think the question is quite clear. If someone has been working full-time for a number of years with a Final Salary scheme, does going part-time close to retirement mean that their pension will then be reduced accordingly, i.e., will it only be based upon the part-time final salary, the concern obviously being that years of working full-time will be lost. Is there a simple yes or no answer ?
As in my previous post - when working part-time, pensionable service is pro-rata and applied to the full time equivalent (FTE) of pensionable pay. Full time pensionable service is not lost - it's added to the part-time pensionable service and the total is applied to the FTE of pensionable pay.Warning ..... I'm a peri-menopausal axe-wielding maniac0 -
(but pensionable service will accrue half as quickly, i.e. half a year for each year worked).Liquorice_Twirls wrote: »This is the important bit, if for example you went half time, it will take you 2 years to build up the the same time in the scheme as someone who is working full time
I can see what you're both saying, but it's a bit like saying that it will take you longer to earn the same money as someone working full time
If you work half the hours, you get half the pay and half the pension .... it's fair and equitable.
Actually, for the part-time service, you do earn a full year's pension, based on part-time pay. The only reason it's converted is to simplify the calculation when you have a mixture of full-time and part-time service.
Take the example of someone who has always worked part-time, for 30 years, retiring on a (part-time) salary of £20k in a scheme providing 1/60th. Their pension is 30/60 of £20k = £10k i.e. half their salary.
Take someone who works full time for 30 years, retiring on a salary of £20k and their pension is exactly the same.
If the part-timer had previously worked 10 years full time before switching to full time, their pension is 10/60 + 10/60 (half of 20 years which they worked part-time) i.e. 20/60 of £40k (full time equivalent of their part-time salary) giving a pension of £13,333.
Another way of doing the calculation is to use actual service and actual pay i.e. 10/60 at £40k (full-time equivalent pay) + 20/60 at £20k gives £6,667 + £6,666
It looks like your only get half the pension for working part-time and you are - but it's actually one years worth of pension, based on your part-time pay.
HTHWarning ..... I'm a peri-menopausal axe-wielding maniac0
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